After hitting the beach during yesterday's blistering Juneteenth holiday, the "buy everything" algos are back and bigger than ever, pushing futures to a fresh all time high with tech leading - as always - and small-caps lagging after the Swiss National Bank unexpectedly cut rates for a second time this year, setting the stage for much more monetary easing. As of 8:00am, S&P 500 futures are up 0.4%, while the ongoing AI frenzy pushed Nasdaq 100 futures 0.6% higher, and are now up for an 8th straight day, the longest stretch since November.
Bond yields are up 2-3bps even as they are on the brink of erasing this year’s loss after a rollercoaster first half; the US dollar is higher vs. most majors while the yuan slumped to a 2024 low as China’s plans for potentially the biggest shift in years in how it conducts monetary policy are starting to surface. Commodities are mixed with oil and precious metals/Ags leading while base metals are weaker amid continued China weakness. Today’s macro data focus will be on jobless claims, housing data, and Fedspeak.
In premarket trading, it was all the usual suspects that were surging with NVDA surging +3%, or up some $100 billion , followed by MU +2.3%, SMCI +2.8%, MRVL +1%; And yes, all Mag7 names are higher pre-mkt. Here are this morning's notable movers:
Traders will now look out for US weekly jobless claims data which is expected to show a small decrease from the previous print. Several Federal Reserve officials, including the Minneapolis Fed’s Neel Kashkari and the Richmond Fed’s Thomas Barkin, are also due to speak and could offer clues on when the US could kick off rate cuts.
“Rate cuts are very much in play for the remainder of this year and that should support risk assets,” said Guy Miller, chief market strategist at Zurich Insurance Company Ltd. “It’s encouraged investors that actually the rates environment is going to be supportive.”
In Europe, the Stoxx 600 benchmark climbed 0.6% led by technology, chemical and construction shares, after the Swiss National Bank trimmed interest rates for the second time this year, encouraging hopes for policy easing across the developed world. The Bank of England held interest rares steady as expected but hinted more of its policymakers are close to backing cuts. Traders now price more than a 50% chance of a BOE rate reduction in August, knocking the pound lower and sending 10-year gilt yields down by three basis points. Here are the most notable European movers:
Meanwhile, France, the source of global market turmoil last week, raised €10.5 billion ($11.3 billion) in its first bond sale since President Emmanuel Macron called a snap election. Seen as a test of investor sentiment, the auction saw solid demand, supporting French bond prices, while the extra yield investors demand to hold French debt eased further off seven-year highs hit recently.
Earlier in the session, Asian stocks traded lower amid lackluster trading, dragged by Chinese shares. The regional moves contrasted with that of European peers, which gained after the Swiss National Bank delivered an interest rate cut. The MSCI Asia Pacific Index dropped as much as 0.4% after gaining 1.7% over the previous two sessions. The biggest drags on the gauge included Tencent, Toyota and Alibaba. Hong Kong benchmarks pared Wednesday’s sharp gains as traders eye more capital market reform policies. Mainland China shares fell for a second session. Shares in Japan declined amid lingering political risks in Europe, while the Nikkei advanced.
In FX, the Swiss franc fell 0.7% against the dollar and is at the bottom of G-10 FX after the Swiss National Bank cut interest rates for the second straight meeting and lowered its inflation projections. The Norwegian krone is the best performer, rising 0.2% after the Norges Bank stood pat on rates and said it will probably need to keep them at current levels for the rest of the year. The pound is down 0.2% ahead of the Bank of England decision. Nvidia shares rise 3.4% in premarket. Treasuries fall, with US 10-year yields rising 3bps to 4.25%. Bunds also dip and underperform their French counterparts, narrowing the 10-year OAT-bund spread by ~2bps. Oil prices are steady, with WTI trading near $81.40 a barrel. Spot gold rises ~$6 to around $2,334/oz. Silver rises 1.4%.
In rates, treasuries reopened after Wednesday’s Juneteenth holiday with yields cheaper by around 2bp across the curve in early US session. Early weakness was pared slightly as gilts advanced after Bank of England kept rates on hold but hinted it may soon back cuts. European bonds were pressured lower from the London open, weighing on Treasuries despite healthy demand for a French bond sale. Treasury 10-year yields trade around 4.24%, cheaper by ~2bp vs Tuesday’s close, with bunds lagging slightly while gilts outperform by around 4bp in the sector. Late Tuesday the US 2s10s spread flattened sharply, with the downside move falling just short of 50bp inversion, a level not seen since December. Also Thursday, a $21b 5-year TIPS reopening auction takes place at 1pm New York time.
In crypto, bitcoin is modestly firmer and holds above $66k, with Ethereum also gaining and now above USD 3.5k. Italy is looking at adopt measures to enhance surveillance over risks surrounding crypto assets, according to Reuters sources; including large fines for those who manipulate the market.
Looking to the day ahead now, and we’ll get the Bank of England’s latest policy decision, along with remarks from the Fed’s Kashkari, Barkin and Daly. The ECB will also be publishing their Economic Bulletin. Elsewhere, US data releases include Q1 current account balance, May housing starts/building permits, June Philadelphia Fed business outlook and initial jobless claims (8:30am). Fed officials scheduled to speak include Kashkari (8:45am), Barkin (4pm) and Daly (10:15pm). Meanwhile in Europe, there Germany’s PPI for May, and the European Commission’s preliminary consumer confidence indicator for the Euro Area in June.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were subdued in rangebound trade amid a lack of catalysts and following the US holiday lull. ASX 200 was lacklustre as underperformance in defensives outweighed the gains in energy and real estate. Nikkei 225 retreated with weakness in the heavy industries clouding over exporter optimism. Hang Seng and Shanghai Comp. were lower with the former choppy amid resistance around 18,500, while the mainland was uninspired after China's Loan Prime Rates were unsurprisingly kept unchanged and the PBoC also reverted to a tepid liquidity operation.
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European bourses, Stoxx 600 (+0.3%) are entirely in the green, having initially opened on a tentative footing; stocks caught a bid after the SNB cut rates, though are currently now off worst levels. European sectors hold a strong positive bias, though with the breadth of the market fairly narrow. Tech takes the top spot, lifted by gains in the Chip names, whilst Food Bev & Tobacco underperforms. US Equity Futures (ES +0.3%, NQ +0.6%, RTY +0.1%) are entirely in the green, with clear outperformance in the NQ, which has been lifted by Nvidia (+3.4% pre-market).
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DB's Jim Reid concludes the overnight wrap
With Hollywood and the rest of the US on holiday yesterday, attention was back on Europe again as the European Commission criticised seven member states for running deficits that were too high, and they outlined the first steps that could open an Excessive Deficit Procedure (EDP). Significantly, that group included both France and Italy, who are running deficits above the 3% limit set out in the EU treaties. On one level, this might seem insignificant for markets given we already knew about the deficit issue and it was priced in. But it’s particularly important right now, because we’ve got the French parliamentary elections on June 30 and July 7, where both Marine Le Pen’s National Rally and the left-wing alliance have indicated that they’d take a more assertive stance against the EU, raising the risk of more clashes over the months ahead. Indeed, the Franco-German 10yr spread widened by another +1.9bps yesterday at 78.9bps, which is its highest closing level since November 2012. There is €10.5bn of French 3 to 8yr bonds to be auctioned this morning - the first since the elections were called 11 days ago. So this will be a good test of demand.
Back to the potential EDP, the Commission unveiled a report looking into several member states, which is the first step in opening such an action. The next steps won’t happen until July, where the Economic and Financial Committee has to provide an opinion on the report, and any recommendations would come in November, so there’s still some way to go in this process. But the report pointed out that in France and Italy, deficits were projected to remain above the limit, with France’ deficit expected to be at 5.3% in 2024 and 5.0% in 2025. Italy’s numbers were a bit lower, at 4.4% in 2024 and 4.7% in 2025, but still above the 3% limit. Other countries were also mentioned, but France and Italy are two of the three biggest Euro Area economies alongside Germany, so what happens there is particularly important, and the treaties even permit the EU to impose fines if the deficits aren’t corrected.
European markets struggled against this backdrop, particularly in France. This meant the CAC 40 fell -0.77% and underperformed other indices, including the STOXX 600 (-0.17%), the DAX (-0.35%) and the FTSE MIB (-0.29%). Sovereign bonds also lost ground across the board, with yields on 10yr bunds (+0.9bps), OATs (+2.7bps) and BTPs (+5.0bps) all moving higher.
Over in the UK, there was another important milestone yesterday, as CPI inflation fell exactly in line with the Bank of England’s target, reaching +2.0% in May as expected. However, some of the details of the report were less favourable, as core CPI was higher at +3.5%, while services inflation surprised on the upside at +5.7% (vs. +5.5% expected), and that’s one of the stickier categories. As a result, investors dialled back the chance that the Bank of England would cut rates by the August meeting, with the chance falling from 52% to 34% by the close.
The Bank of England will remain in focus today, as they’re announcing their latest policy decision at 12pm London time. In terms of what to expect, it’s widely anticipated they’ll leave rates unchanged at 5.25%. In his preview (link here), DB’s UK economist thinks there’ll be a 7-2 vote split, with 2 in favour of a cut. He also has a chartbook out yesterday (link here) after the UK inflation print, where he points out that the report will raise the bar for a summer rate cut.
Staying on the UK, there are now just two weeks left until the general election on July 4, and yesterday saw another MRP poll from YouGov released. That showed Labour winning a 200-seat majority, with 425 seats in the House of Commons, beating their previous record in the 1997 landslide won by Tony Blair. The poll also showed the Conservatives falling to 108 seats, down from 365 at the last election. The Lib Dems significantly strengthened their presence as well, up to 67 seats, which would be the most seats for them or their predecessor Liberal Party since 1923. In addition, the poll saw Nigel Farage winning a seat in Parliament for the first time, with his Reform UK party on 5 seats.
Over in the US, markets were closed for the Juneteenth holiday, but futures were pointing to a more resilient performance relative to Europe, staying relatively flat all day. There wasn’t much data either, although the NAHB’s housing market index for June fell back to a 6-month low of 43 (vs. 46 expected). This morning S&P and Nasdaq futures are +0.12% and +0.32% higher respectively with today being the first day with Nvidia opening as the largest company in the S&P 500 and with it the world.
Asian equity markets are mostly drifting lower this morning with the Nikkei (-0.64%) leading losses followed by the CSI (-0.49%), the Hang Seng (-0.40%) and the Shanghai Composite (-0.28%). The PBOC kept its one-year loan prime rate (LPR) unchanged at 3.45% while the 5-yr LPR – a reference rate for mortgages remained intact at 3.95%. China also set the yuan’s daily reference rate at 7.1192 per dollar, its weakest since November. US treasuries have resumed trading following yesterday’s holiday with yields on 10yr USTs moving +2.5bps higher to trade at 4.25% as we go to print.
Early morning data showed that New Zealand's economy exited a technical recession, growing +0.2% q/q in Q1 (v/s +0.1% expected) as against a -0.1% contraction in the previous quarter. GDP rose +0.3% from the year-earlier quarter, beating the +0.2% estimate. Following the data release, the New Zealand dollar strengthened (+0.24%) against the dollar before retracing to trade little changed at $0.6133.
To the day ahead now, and we’ll get the Bank of England’s latest policy decision, along with remarks from the Fed’s Kashkari, Barkin and Daly. The ECB will also be publishing their Economic Bulletin. Elsewhere, US data releases include the weekly initial jobless claims, housing starts and building permits for May, the Philadelphia Fed’s business outlook for June, and the Q1 current account balance. Meanwhile in Europe, there Germany’s PPI for May, and the European Commission’s preliminary consumer confidence indicator for the Euro Area in June.